Futures Rebound as Oil Backs Off War Highs

• U.S. stock futures rose on Monday, with Dow futures up 168 points, S&P 500 futures up 29 points, and Nasdaq 100 futures up 121 points, signaling a rebound from Friday’s sell-off driven by easing fears of a broader Israel-Iran conflict.
• Escalating Middle East tensions, including Iran’s threat to close the Strait of Hormuz and Israel’s claim of “aerial superiority,” alongside rising oil prices (WTI crude down $0.66 to $72.32), pose risks to global markets and could complicate the Federal Reserve’s inflation strategy ahead of its Wednesday rate decision.
• The EU’s reported willingness to accept 10% U.S. tariffs to avoid steeper levies, coupled with higher Treasury yields, reflects ongoing trade and economic adjustments as investors await the New York Fed’s Empire State Manufacturing Survey for economic insights.

The U.S. stock market is poised for a rebound as futures climbed on Monday, signaling a cautious return of investor confidence despite ongoing geopolitical tensions in the Middle East. Dow Jones Industrial Average futures rose 168 points, or 0.40%, to 42,375.00, while S&P 500 futures gained 29 points, or 0.48%, to 6,007.75. Nasdaq 100 futures advanced 121 points, or 0.56%, to 21,765.00. This uptick follows a sharp sell-off on Friday, when the Dow plummeted over 765 points amid a broad risk-off sentiment triggered by escalating Israel-Iran hostilities. The market’s recovery reflects growing optimism that the conflict may not spiral into a wider regional crisis, though significant risks remain.

The Israel-Iran conflict, marked by missile exchanges over the weekend, remains a focal point for investors. Israel’s strike on Iran last Friday prompted retaliatory missile launches, with both nations targeting energy infrastructure by Monday, marking a fourth day of attacks. Iran’s threat to close the Strait of Hormuz, a critical artery for global oil trade, has heightened concerns about potential disruptions to energy markets. Israel’s military, meanwhile, claimed “aerial superiority” over Iran. According to IDF spokesperson Brig. Gen. Effie Defrin, Israeli forces now operate with what he called “aerial freedom” across Iranian airspace, including over the capital, Tehran. Despite these developments, President Trump expressed cautious optimism on Sunday, suggesting a “good chance” for a peace deal, though he noted that hostilities might need to “play out” first. Rising oil prices, with WTI crude oil futures declining $0.66, or 0.90%, to $72.32 a barrel after briefly topping $77 overnight, underscore the market’s sensitivity to these events. Any further escalation could amplify inflationary pressures, complicating the Federal Reserve’s monetary policy decisions.

On the economic front, Treasury yields edged higher, with the 30-year yield rising 0.073, or 1.507%, to 4.9150, and the 10-year yield increasing 0.012, or 0.27%, to 4.4380. These movements reflect ongoing market adjustments to inflation expectations and the Fed’s anticipated policy stance. Investors are closely monitoring the New York Fed’s Empire State Manufacturing Survey, released Monday, for insights into economic resilience ahead of the Federal Reserve’s interest rate decision on Wednesday. Market consensus strongly favors the Fed holding rates steady, as climbing oil prices and persistent inflation limit room for rate cuts, despite President Trump’s calls for Chair Jerome Powell to ease monetary policy.

Global trade dynamics are also in focus, with the European Union reportedly prepared to accept 10% U.S. tariffs on all exports, aligning with Trump’s push for “reciprocal” trade policies, according to German newspaper Handelsblatt. This move aims to avoid steeper tariffs on key sectors like automobiles, pharmaceuticals, and electronics, signaling a potential de-escalation in transatlantic trade tensions. However, the broader geopolitical and economic environment remains fraught with uncertainty, influencing investor sentiment.

In other markets, gold prices dipped $11.10, or 0.32%, to $3,441.70, reflecting a slight retreat from safe-haven demand. The VIX, often referred to as the market’s fear gauge, fell 0.70, or 3.36%, to 20.12, indicating a modest easing of volatility. These shifts suggest investors are cautiously recalibrating risk exposure, balancing geopolitical concerns with expectations of economic stability.

As markets navigate this complex landscape, the interplay of geopolitical developments, energy price volatility, and monetary policy expectations will likely dictate near-term sentiment. Investors remain vigilant, with the potential for sudden shifts in risk appetite if Middle East tensions escalate further or if upcoming economic data signals unexpected weaknesses. For now, the market’s upward tilt in futures reflects a tentative step toward stabilization, but the path forward hinges on the delicate balance of these global and domestic factors.

WallStreetPit does not provide investment advice. All rights reserved.

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